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• US Financial Markets: Global investors seek US The Misleading Panic Around INR
bonds and equities, which require transactions in Depreciation
USD. The media often amplifies concerns about rupee
depreciation without considering its broader context.
• Safe-Haven Appeal: In times of global uncertainty, However, a falling rupee does not necessarily signal
investors turn to the USD as a ‘safe-haven’ asset. an economic crisis. In fact:
When the US Federal Reserve raises interest • A weaker rupee makes Indian exports more
rates, capital flows from emerging markets like India competitive, benefiting industries like IT and
to the US, causing the rupee to depreciate against pharmaceuticals.
the dollar. This is not necessarily a sign of India’s
economic weakness but rather a consequence of • Foreign investors may find Indian assets more
global financial movements attractive, leading to increased investments.
• Other major global currencies, including the Euro
Evaluating INR Through a Broader Lens and Yen, have also weakened against the USD,
Instead of focusing exclusively on USD-INR indicating a broader trend rather than an India-
exchange rates, it is more insightful to examine specific issue.
the rupee’s performance against multiple global
currencies. For example:
Conclusion: A Holistic View of Currency Strength
• If the INR weakens against the USD but remains The perception that a declining INR against the USD
stable or strengthens against the Euro, Pound, or signifies economic weakness is an oversimplified
Yen, it suggests that the dollar’s strength, rather than narrative. A more accurate assessment requires
the rupee’s weakness, is driving the change. considering the Real Effective Exchange Rate
(REER), global market trends, and India’s economic
• Comparing INR to other emerging market fundamentals. Instead of focusing solely on USD-
currencies (e.g., the Brazilian Real, Turkish Lira, or INR fluctuations, a more balanced approach would
South African Rand) offers a more comprehensive involve analysing India’s trade policies, economic
view of how India’s currency is performing globally. growth, and investment climate. In the long run,
strengthening India’s manufacturing sector, boosting
exports, and maintaining macroeconomic stability
The Role of India’s Economic Policies will ensure the rupee remains resilient. By shifting
• Several domestic factors influence the rupee’s the focus from a narrow USD-INR comparison to
strength, including: a broader global analysis, we can gain a clearer
understanding of the Indian rupee’s actual strength.
• Foreign Exchange Reserves: High forex reserves
help stabilise the rupee amid market fluctuations.
• Trade Balance: A rising trade deficit can weaken
the rupee, while strong exports can support its value.
• Inflation and Interest Rates: Stable inflation and
competitive interest rates make the rupee more
attractive to investors.
• Foreign Direct Investment (FDI) & Remittances:
Strong FDI inflows and remittances from the Indian
diaspora provide additional support to the rupee.
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